What's the Future of Apple's Song Pricing?

Now that Apple has dropped the price of (some) non-DRMed songs to 99 cents, what does the future hold? The problem is that the foundation of Apple's iTMS economy, once unassailable, now seems to be crumbling. Apple's DRMed tracks not...

The problem is that the foundation of Apple's iTMS economy, once unassailable, now seems to be crumbling. Apple's DRMed tracks not only are the same price of as some of its non-DRM tracks, but are encoded at a lower bitrate. And, of course, there's Amazon's MP3 service, which has emerged as an unexpected but powerful competitor. Left alone, it seems quite clear that Amazon is going to force the market price for all non-DRMed music to be 99 cents or below.

Assuming a.) that Apple doesn't decide to forgo DRM altogether (at this point, an unlikely scenario) and b.) that it is being encouraged by the labels to make its DRMed tracked more appealing than its non-DRMed tracks, it would seem that Apple has three possible maneuvers: bump up the bitrate on its DRMed tracks (to 320 Kbits/s, perhaps), negotiate exclusive releases with the labels, and start thinking about package deals.

As I stated above, the assumption here is that the price of a non-DRMed track is now 99 cents, and that a given track will be priced as such in a short time. There are three variables in a digital piece of music: its bitrate, its price, and whether DRM is turned on or off. The only way for DRM to go is "off," while prices are almost inevitably heading down. I don't know whether there will be re-encoding issues, but bitrate seems to be an easy knob for Apple to turn.

However, music distribution companies are used to striking exclusive deals, and that's a game that Apple can play. The problem is that, given that the vast majority of music is already apportioned to some music service, it's difficult to come up with a "franchise" band that can make or break a service. The Beatles seem to be headed in that direction, but it's unclear whether or not they'll appear on Amazon, too.

Could Apple step into the "bootleg" market and cut deals to provide live concert recordings, directly with the band? I'd call this a subset of the "exclusive" angle. Heck, if I couldn't make a show, I'd pay for this. It's not quite being there, but it's close.

Another advantage Apple has is that its iTMS store is itself somewhat exclusive -- Apple locks in consumers to its players and iTunes, at least where its DRM tracks are concerned. The investment that Apple's users already have in the service are its strongest anchor.

The other angle that Apple could try is the "boxed set". Apple's been down this road before, with such gimmicks as the U2 iPod. There's no reason that it couldn't offer something similar with other groups, too, even just as a collection of songs. One very Apple thing to do would be to convince an artist, maybe even one of the band members itself, to come up with "alternative" album art. Sure, it might be self-indulgent crap, but true fans would eat it up.

What's Amazon's response to all of this? Community, probably. Amazon does an excellent job letting its users come up with recommended lists of books, graphic novels, DVDs, and other items. Signing up known DJs or other names to suggest their own compilations would take the sense of community and add an "expert" feel to it. It's possible that either Apple or Amazon could spin this as sort of a digital version of "Desert Island Discs," or something like that.

And if you go that route, then iTMS starts looking more and more like a Rhapsody, or even a radio station. Is that the way forward? Well, check out the Web sites of your local radio station: not only are there links to related music videos, but often links to purchasing individual tracks online, too.

Meanwhile, everybody's figuring out that they can sell their own music. Radiohead and Madonna don't need their labels, who are also figuring out that they can distribute their music to the masses. In short, that makes Amazon and Apple a third-tier middleman, literally the 99 Cents store of the digital marketplace.

I'd expect to see more speculation on this in future "Inside Apple" columns over on PCMag; until then, what's your take?